Employment taxes must be paid on employee tips. The IRS requires employees to report their
tip income to their employer at least monthly. This income must be added to the wages paid by the
employer for employment tax purposes.

Employees should keep a record of their tips. Employees may request a booklet from the
IRS or they can use the copy included here. Preferably every pay period, but at a minimum, once a month,
the employee should provide the totals to the employer (see page 2 of attachment).

What to do: employers

Add the reported tips to the employee's normal wages and calculate taxes accordingly.
You may not require the employee to give you their tips in cash. This is strictly a reporting requirement. Both the employee
and the employer must pay employment taxes on these tips.

Report at least 8% of receipts

Employees must report at least 8% of the business' receipts as tips. If they report less,
at year-end the employer must allocate any shortage to the employees.

At year-end: unreported tips

Employers must report the total wages and reported
tips on the employee's W-2 form. If there is
a shortage from the required 8% and tips must be allocated, the allocated tips must be shown on line 8 of W-2.
Employees must pay social security taxes on any allocated tips using
IRS form 4137.

If any employee earns more than $200,000 ($250,000 for married filing jointly), additional Medicare tax must be deducted from the employee's wages and paid with other employment taxes.
Click here for details.

Example

Social security Diane earns $60,000 per year. Beginning every January,
or whenever Diane is first
employed, you deduct 6.2% from Diane's gross pay AND your company pays 6.2% times her gross salary for
Diane's social security account - total 12.4%. When she has earned $118,500 for the year, social
security payments stop.

Medicare In addition to social security deductions described above, you also deduct 1.45%
from Diane's gross pay AND your company pays 1.45% times her gross salary for Diane's
Medicare account - total 2.9%. There isn't a cap for Medicare, so these taxes are paid
throughout the year.

Employee Federal Income Tax Deduct Employee Income Tax from
Diane's gross pay according to the Circular E tax schedule, using the allowances she
claimed on her W-4. These deductions should ALWAYS be made, regardless of Diane's cumulative earnings.

Due date

Monthly by the 15th day of the following month for
first year employers and employers with under $50,000 in tax liabilities
(approximately $60,000 in annual payroll).

Any employer with more than $100,000 in unpaid tax liabilities at any time must pay taxes
by the next bank day.

In November of each year, the IRS will notify you about any changes to your deposit requirements.
If you have more than $50,000 in deposits during the year, you will become a
semi-weekly depositor. When this happens, taxes will be due:

If your payday is

Taxes are due

Saturday

Friday

Sunday

Friday

Monday

Friday

Tuesday

Friday

Wednesday

next Wednesday

Thursday

next Wednesday

Friday

next Wednesday

Fast growing company?

If a monthly depositor accumulates $100,000 in unpaid taxes at any time, taxes must
be paid by the next business day and for the rest of the year, taxes must be paid on a semi-weekly
basis as described above.

Remember that when you pay the IRS payroll taxes, employers must MATCH the employee social security and Medicare taxes.

Tax rate

California Personal Income Tax (PIT). Use your employee's
W-4 or DE-4 with the
withholding schedules from the
California Employer's Tax Guide to determine the tax withholding.
Employees pay these taxes through payroll deductions.

Disability Insurance (DI) and Paid Family Leave 1% of the first $100,880 of gross income.
Employees pay through payroll deductions.

Bill earns $25,000 per year. Each payroll, deduct Personal
Income Tax according to the tax schedule, using the allowances he claimed on his
DE-4 form. These deductions should always be made, regardless of Bill's
cumulative earnings.

In addition, beginning every January, or whenever Bill is first employed,
deduct 1% of Bill's gross pay for disability insurance. These deductions
continue until he has earned $100,880 for the year. Note: It is irrelevant
whether Bill previously worked for another employer. Disability insurance
is paid on the first $100,880 in earnings per employer. However, Bill is
entitled to request a refund from the state for the excess disability insurance.
This is done on his California
540 income tax return.

Unemployment insurance (UI) .034 of the first $7,000 of gross income per employee. Employer pays.

Employment training tax (ETT) .001 on the first $7,000 of gross income per employee. Employer pays.

Ken earns $25,000 per year. Beginning every January - or whenever Ken is first employed,
your company must pay .035 times the gross salary for UI and ETT taxes. These payments should
continue until he has earned $7,000 for the year. At that point, no more payments are required
for that year.

Due date

Usually the same as federal deposit rules. However, if you have $500 or less in California
personal income tax withholdings, you can wait until quarter-end to pay the tax with form
DE-6.

What to do

You should automatically receive DE-88s with your business name, address
and account number when you file form DE-1.
At the end of each month, complete DE-88 as follows:

Pay date

Enter the last pay date that this deposit covers (the day your employees were given
their money).

Deposit schedule

Check "Monthly" if you are a new employer.

Quarter covered

Put the last two numbers in the year and whether it is Q1, Q2, Q3 or Q4.
So, 2013, quarter 1 would be "131"

The following are some basic wage and labor requirements for California. These laws enforced
by California's Division of Labor Standards Enforcement, also known as the State Labor Commissioner.

Required wage notice

Every employer must post a wage order notice for their industry.
It contains
the specific requirements regarding wages, overtime, breaks and other labor standards for your industry.
Click below for the poster, or visit http://www.dir.ca.gov/IWC/WageOrderIndustries.htm

California's minimum wage is currently $11.00 for employers with 26 or more employees; $10.50 for smaller businesses. The rates will increase on 1/1/19 to $12.00 for large employers; $11.00 for small employers. The law allows employers to pay
minors and learners 85% of the prevailing minimum wage. In California, tip income cannot be used as part of minimum wage.

Typically a worker must be paid 1.5 times normal pay for the
first four hours of overtime and 2 times normal pay for additional hours.

If an employee works 7 days in a row, overtime must be paid for the 7th day at 1 1/2 times normal pay
for the first eight hours, two times for additional hours.

What that means: If someone works 10 hours one day and 3 hours for four days, (s)he must be paid two
hours overtime.

Exceptions to overtime rules

No overtime is required for:

On-site construction

For people who earn $1150 or more per month in an administrative, executive or professional capacity.

Flex-time and 4-day work weeks with more than 8-hour shifts are allowed these industries:

Manufacturing

Public housekeeping

Professional

Technical

Clerical

Mechanical

These exceptions are very specific and require secret ballot votes and written documentation.
These requirements are described on the industry's wage order notice.

More about "exempt"

To be exempt from overtime, employees must work in an administrative, executive or professional capacity. The Labor Commission and courts use these criteria:

Administrative employees assist management in staff functions and are not involved in production. Their work requires discretion and independent judgment. The following jobs are NOT considered exempt because they do not involve independent judgment: bank tellers, bookkeepers, private secretaries, shipping and receiving clerks.

Executive employees manage and supervise two or more people. They must spend most of their time:

Interviewing, selecting and training employees.

Setting and adjusting pay rates and work hours.

Keeping records of and evaluating subordinates' performance.

Handling employee complaints.

Disciplining employees

Determining work techniques and flow and distribution of work and materials

Professionals require scientific or specialized study and the employee's work must require the consistent exercise of discretion and judgment.

Now you have to pay the owners. Business owners can make "draws"
of any amount they want. However, they have to pay taxes on all their net profits each quarter - regardless of whether they withdrew the money. There is also a 15.3% social security tax that is added each quarter.

How can you make sure you'll have enough money at quarter-end to pay taxes? One way is to use the "gross-up" feature of a payroll calculator.

Because most sole proprietors don't pay themselves regularly, you need to take the amount that you want to withdraw for yourself (the after-tax amount) and divide it by (5 times the number of weeks the pay is for).